Brexit Food Industry Implications

July 6, 2016

The UK vote in favor of leaving the European Union (EU) sent shockwaves through the global market. Governments, business, and stock markets are struggling to come to terms with what has happened. For the food and beverage industry, the potential impact is huge: across tariffs and trade, inward investment, labor issues, as well as general sector policy and regulation.

In the United Kingdom, some on both sides of the Brexit campaign have argued that a new trade agreement with the EU and the rest of the world will need to be concluded as a matter of urgency. However, the EU institutions have pointed out that such negotiations cannot formally start prior to finalization of the process on the terms by which the UK will leave the EU. It is expected that negotiations on the terms of an exit, unprecedented in their nature, once launched, will not be easy and may take much longer than the two-year period foreseen in the EU Treaty. The specifics of any deal on how to exit the EU and how to continue trading afterwards are yet to be defined, and herald a period of prolonged uncertainty for business. A number of scenarios may unfold:

Leaving the EU could result in higher tariffs and trade barriers between the UK and the EU. There is no definitive blueprint of what future trading arrangements would look like: an EEA (European Economic Area)-like arrangement with the EU (g., Norway), bilateral agreements with the EU (e.g., Switzerland), or (should no trading arrangement with the EU be agreed) the UK could be subject to tariffs that the EU applies to all other World Trade Organization (WTO) members (30% tariff on sugars and confectionary, 20% on tobacco and beverages, 10% on fruit and vegetables, for example).

Non-EU food manufacturers exporting to the UK will likely be met with more complex customs procedures. Increased paperwork could lead to problems especially for food manufacturers with perishable foods that would also be subject to VAT and duties. Brexit could also lead major food companies to reconsider locating in the UK or to relocate to elsewhere in the EU.

Specific food products in the UK are protected based on their names or geographical origin, such as Scotch whisky and Cornish pasties. Currently, these products benefit from free access to the EU market, and have their geographic-origin appellations protected through the EU’s trade deals. It is not clear how these protections would survive once the UK has left the EU.

Further barriers to trans-border trade may arise if the UK decides to replace existing EU food regulations with deviating national rules. At least in the long run, with the UK not following revisions and amendments of such regulations made in the EU, this may create extra costs for manufacturers and traders alike.

These are just some of the key issues that will need to be addressed. Brexit is not just a concern for UK food exporters but for every non-UK producer serving the UK market. Food businesses globally will need to stay close to this process for quite some time to come.

After Brexit, the only thing that is certain is uncertainty. And business, like nature, abhors a vacuum. For more information on all things Brexit please visit our website www.hoganlovells.com/brexit.